Los Angeles County fiscal investigators are re-examining the finances of a Compton group home for vulnerable children whose owner admitted to misusing hundreds of thousands in public funds and failing to pay taxes years ago but continues working under a county contract.

The office of county Auditor-Controller Wendy Watanabe is expected to release an audit this week on Little People’s World, which contracts with the Department of Children and Family Services to care for kids with severe mental and behavioral problems at two group homes in Compton.

The facilities are operated by the husband-wife team of CSJ and Hitaji Kidogo. County officials have previously found that the homes themselves are well-run and provide a safe environment for children. But they have also found that Little People’s World improperly gave or “loaned” CSJ Kidogo $280,000 in funds to be used for public purposes, which he apparently then used to invest in property outside of Los Angeles County. Little People’s World had also failed to pay $320,000 in payroll taxes, according to a December 2011 audit.

About $185,000 of the $280,000 is owed to the Los Angeles County Department of Children and Family Services, which has been contracting with Little People’s World for years to care for kids with severe mental and behavioral problems.

At the time, the county decided to keep the Kidogos on contract without prosecution and strike a deal for them to repay the funds.

DCFS Director Philip Browning, however, has requested a new audit amid concerns that executive director CSJ Kidogo might be paying his debts by giving himself a $6,000-a-month raise, and by leasing out the real estate he had bought with money from child welfare agencies.

“I know that’s being looked at by the auditor-controller,” he said.

CSJ, 72, and Hitaji, 62, admitted making mistakes in the past but stressed they were merely trying to expand their services, and were never out to enrich themselves.

“We have learned to stay in compliance,” CSJ Kidogo said in a recent telephone interview.

Watanabe said in the earlier audit that Kidogo initially claimed the nonsalary payments were a “loan” intended for upgrades and expansion.

When auditors couldn’t find proof the transactions had been approved by the group home’s Board of Directors, Watanabe said Kidogo acknowledged using the money to buy “nongroup home related” real estate in Riverside County, Oakland and Oklahoma.

Auditors estimated that the portion of the funds that didn’t come from L.A. County instead came from Riverside County, where Little People’s World operates a group home in Banning and another in Cherry Valley.

In 2009, Kidogo signed a deal with the county treasurer and tax collector, promising to take $3,000 out of his salary each month to reimburse the DCFS.

To date, he has paid back $93,149.67, according to the Assistant Treasurer and Tax Collector Kathy Gloster.

Kidogo also committed in 2009 to taking an additional $4,000 out of his salary each month for back payroll taxes owed to the Internal Revenue Service.

Interviewed last week, Kidogo denied giving himself a $6,000-a-month raise to cover any of those payments.

“I haven’t had a raise since maybe 2003,” he said, adding he has dipped into his retirement fund.

Interviewed on Tuesday, however, his wife, said they each received raises in 2008. She would not say how much, only that “it was within the guidelines. “

Hitaji, whose title is assistant executive director, also said they were “not being malicious or trying to take advantage” when they bought real estate with money from the DCFS and other child welfare agencies and put it in their names.

“We just didn’t know we couldn’t do that,” she said. “It was certainly not to enrich ourselves.”

“We have tax difficulties but we kept people working when we should have laid people off, and we didn’t take raises ourselves,” she added.

Hitaji Kidogo said they initially wanted to buy the properties in the name of Little People’s World, but ended up putting it in the name of CSJ Kidogo instead because they were the guarantors of the loan.

When asked why the couple hung onto the three properties after the county demanded payback, she explained they were bought during the housing bubble and eventually went underwater.

“We couldn’t sell without taking a loss,” she said.

The property bought in Banning, Riverside County, is now a state-of-the art office and training facility for staff, and is also used for visitations.

Hitaji Kidogo said Little People’s World tried but failed to secure a license to turn the Oklahoma property into a group home, so it is now sitting idle. She said the plan is to liquidate it.

As for the Oakland property, Hitaji Kidogo said she and her husband bought it with money from child welfare agencies because they had met with representatives of a nonprofit foundation who expressed interest in working with them. The foundation later backed out and they had difficulty making money leasing out the property.

She said she and her husband made the initial payments on the house using child welfare money but they have been dipping into their own pockets for the mortgage for over a year.

Both Kidogos said the children in their care have never been, and never will be, adversely impacted by the diversion of DCFS and other child welfare funds to buy real estate.

“We network. We use resources. We find out how to use grants, get access to things that are being given,” Hitaji Kidogo said.

Browning acknowledged the DCFS could have dumped Little People’s World and sued Kidogo when the real estate purchases were first discovered. Instead, it placed them on a month-to-month contract – $8,309 a month for each of the 15 kids ages 6 to 15 who are currently in their care – and negotiated a repayment plan.

“One of the things we want to do is get our money back,” Browning explained. “If we put them out of business, we would lose a lot of money. “

Also, Browning noted services provided by Little People’s World have been consistently positive over the years.

In a performance audit dated Oct. 31, 2012, auditors said, “The interviewed children generally reported feeling safe at Little People’s World; having been provided with good care and appropriate services; being comfortable in their environment and treated with respect and dignity. “

Browning said another reason why DCFS continued working with Little People’s World is because the number of group homes operating in Los Angeles County is dwindling.

“We have to think about where we would put these kids if the program collapses,” he said. “We’re really stretched in terms of finding appropriate placement for these children, who need a high level of care. “

Depending on the facts, Loyola Law School professor Laurie Levenson said Little People’s World could potentially have been charged with embezzlement, misappropriation of public funds and fraud. She said DCFS’s decision might have turned on whether it suspected Kidogo of malicious intent.

“There’s a lot of discretion that goes into prosecution and, frankly, this would not be the only case where prosecutors decided it would better to have them pay the money back rather than put them in jail,” she said.

Several members of the Board of Supervisors, however, appear ready to crack down on group homes, several of which have not passed muster in financial audits. Aside from Little People’s World, the auditor-controller has looked at three other group homes this year and found two of them had tens of thousands in “unallowable expenses,” “unsupported wages” and other problems.

“It’s very disturbing when there are allegations – or, for that matter, audit findings – that raise questions about contract compliance and quality service for these children,” said Supervisor Mark Ridley-Thomas, in whose district Little People’s World operates. “That issue will not be overlooked; indeed, it will be confronted.””Whatever people may have gotten away with in the past, those days are over,” Ridley-Thomas added.

“Accountability and compliance are the orders of the day.””When it comes to the management of these funds, fiscal incompetence and malfeasance is absolutely unacceptable,” said Supervisor Don Knabe. “Public funds should not be used as an ATM machine by those we entrust to care for our most vulnerable!”

“We are looking at implementing the most effective ways to ensure fiscal responsibility and the highest quality of care for the thousands of children we are responsible for, and my expectation is that any agency which abuses our trust will either clean up their act or we will cancel their contracts,” Knabe added

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